The juggernaut rumbles on

When you're wrong it's best to admit it and move on. A couple years ago, it appeared that Walmart was struggling, especially overseas (closing operations in Germany and Korea, and posting poor performances in Japan and UK).

But things have changed. Actually, I admitted this last year, when I posted this, but now things are looking even better:

• International operations Q1 underlying sales up 9.1 pct
• International Q1 underlying operating profit up 7.8 pct
• Says outperforming in almost every foreign country
• "Stand out" quarter from Asda in Britain

Some of their growth of course must be attributed to the recession, but the improvement seems to have predated the worst of the downturn. It looks like Walmart's growth continues unchecked.

Walmart won't report monthly

Walmart says that the purpose is to allow the chain to focus longer-term, rather than concentrating on justifying very short-term changes in sales.

I'm a bit of a crank on the subject of short-term thinking -- I blame it for a lot of the ills in American business (probably even more that it deserves). So I approve of Walmart's thinking -- having to justify sales blips to Wall Street every month probably motivates a lot of poor decisions.

A number of other retailers have moved in this direction recently (Eddie Lambert of Sears took heat for doing this a few months back, as I recall).

Over the past year, about a half dozen retailers have done so, but they mainly are specialty retailers such as AnnTaylor Stores Corp., Guess Inc., Bebe Stores Inc., Cache Inc. and Pacific Sunwear of California Inc. Analysts say many of the stores acted because their comparable-store-sales were deteriorating and it is more of a cost drain compared to better-capitalized large retailers.

Macy's Inc., among the biggest retailers in the nation, stopped dispensing same-store-sales figures in February 2008 but started again last October.

But what will all us nerds do if we can’t obsess over monthly sales figures?

How to fight Walmart

Dartmouth's Tuck School of Business studied Walmart openings in new markets -- how local retailers reacted and Walmart's effect on their sales.

The effect was huge -- a 40% drop in sales for neighboring mass merchants and a 17% drop for grocers.

How did most retailers react to Walmart?:

• Cut prices
• Reduced number of brands carried
• Cut back on promotions

All three are bad moves, according to the study. Kusum Ailawadi, who led the study said that retailers who cut price were merely giving up income, since they could never hope to match Walmart's pricing. And instead of cutting brands, they would have been better off to diversify their offerings, especially on higher-end brands where they would not be competing with Walmart.

In regard to promotions, they should increase, not decrease their promotions. "If a store is offering weekly specials, it's harder to make exact price comparisons," she says.

Walmart opening "Supermercado de Walmart"

Walmart is opening two news stores, in Phoenix and Houston, catering to the Hispanic market. The stores will open in former Neighborhood Market locations of about 39,000 square feet.

The retailer said that the stores were in “strongly Hispanic neighbourhoods” and would feature a “new lay-out, signing and product assortment designed to make them even more relevant to local Hispanic customers”. The staff will also be bilingual.

Wal-Mart’s Sam’s Club warehouse store also plans to open a 143,000 sq ft Hispanic-focused store called Más Club in Houston this year.

Other supermarket chains (e.g., Publix, HEB) are opening similar stores, and a great many retailers, including Walmart, are customizing some of their stores to reflect the demographics of their area. It probably is relevant, as well, that the head guy at Walmar's US stores was formerly the head of Walmart Mexico.

A tale of two RFIDs

Just a couple weeks ago, P&G announced that they are discontinuing tagging of displays at Walmart to track compliance, apparently because of lack of cooperation from Walmart.

Now we see the other side of the story, with Walgreen announcing that they are expanding their efforts in using RFID to track in-store implementation of promotions. Why? Because it works:

The results have been impressive: Over the past year, our in‐store execution has grown to nearly double the industry average. Incremental sales assure us that we are on a good path to improving our customers’ shopping experience.

The lesson here, I think, is not a new one. Information is only valuable if it is used. Walmart, for whatever reason, decided that the information it gained from tagging displays was not of sufficient value to use their resources to act on it. Walgreen felt differently. The numbers seem to support Walgreen's approach, but perhapr Walmart was looking at very different numbers from their efforts.

Is this the new look for Walmart PL?

Supposedly, this pic (and others here) are examples of the new logo and package design for Walmart's Great Value line.

Couldn't possibly tell you if it's true or not, but it's an interesting look. Not that anybody would ever hire me to do a graphics job for them.

This ties in with the post immediately below, speculating on the effect on suppliers if Walmart's private label efforts are successful.

How high will PL go at Walmart?

Walmart is reformulating and repackaging its Great Values food brand, with the intent to significantly increase its market share (it's already, they claim, the #1 food brand in the country).

Which raises a question: how high will Great Value's share go?

According to Information Resources, Inc., the Chicago-based market research firm, private label accounts for 17.6% of dollars and 22.5% of units at Wal-Mart. One securities analyst — Deborah Weinswig of Citigroup — has been quoted as saying that private label might skyrocket to 40% of dollars at Wal-Mart within the next three years. She figures that if Wal-Mart carries the top three branded products in a given category, it could substitute one of them with its own brand.

Even if, as the article argues, the 40% number is too high, if 30% or so is more like it, that still means major food brands will lose ten to fifteen share points at the world's biggest retailer. What is that going to mean to them?

If Great Value is going to be getting that big a share of sales, then it probably also means, as the Citigroup analyst noted, that some brands will be squeezed off the shelf. Which plays into Walmart's efforts at "SKU rationalization":

So Wal-Mart went deep on benchmarking its competition to understand where the product range started and stopped within a given category. Then it worked to achieve a clear offering — paring down to the right number of SKUs so that categories weren’t diluted and fuzzy. With SKUs cut by 10% to 50%, Wal-Mart has been able to achieve higher sales. Fleming says he hasn’t yet seen departments that have lost sales from SKU cuts.

I'd hate the be the #3 brand at Wal-Mart right now.

P&G no longer tagging displays for Walmart

I'm not sure what to make of this item:

The Procter & Gamble Co. (P&G), a pioneer in the use of Electronic Product Code (EPC) technologies in the supply chain, has ceased placing EPC tags on promotional displays bound for Wal-Mart's RFID-enabled stores.

Although I haven't followed the subject closely, from the early days of RFID I have thought that its most significant application, from a trade promo standpoint, was in tracking displays for purposes of compliance monitoring. The article seems to support this view, quoting a P&G exec: "... the work we conducted with Wal-Mart has shown that this use of the EPC can deliver improved promotional effectiveness, better sales and, most importantly, higher shopper satisfaction."

So why stop doing it? It appears that Walmart was was not cooperating with the project. The article cites a P&G supplier as saying that "the company is frustrated that Wal-Mart's sales associates have not acted on the data in order to improve compliance with promotional programs."

P&G's managers, the contract manufacturer explains, "were asked to put the tag on and absorb the cost of that, and I think they felt Wal-Mart should be doing more to live up to their end of the bargain. Why put the tag on if Wal-Mart's not going to act on the data?"

P&G of course is not going to say anything like that. But they seem to hint at it:

"We've been working on these applications for close to 10 years. We have learned that to secure sustainable benefits, the use of EPC requires deep levels of collaboration between the manufacturer and the retailer, and a commitment to use the actionable visibility provided by the EPC to change business processes. "

Hmmm ... Walmart not collaborative?

Walmart leaves PRISM waiting at the altar

Walmart has announced that it will not be a part of PRISM when Nielsen's experimental in-store marketing measurement tool goes live next year. Walmart was one of the original backers of the initiative, so their departure is a blow, but it is not really all that surprising, nor does it fatally wound PRISM.

Combined with Walmart's absence from syndicated data, this may seem to indicate a chronic inability to commit, but a more likely explanation is simply that Walmart feels that their competitors may gain more from having Walmart data in the mix than Walmart gains from being in the consortium -- the same reason they withhold their POS from the syndicators. Having been part of the pilot, Walmart now knows enough about how the new tool works to do the same thing on their own and make it part of RetailLink.

It makes perfect sense, though it is no doubt a disappointment to Nielsen, and will further complicate the lives of marketers who were looking forward to the new tool.

I was initially dismissive of PRISM, because I felt sales data was a better measure of the effectiveness of in-store marketing, but I came around as I appreciated better that PRISM's purpose is different (to measure brand-building) and should be seen as supplemental and complementary to sales measures, rather than as an attempt to supplant those measures.

While Walmart's defection means that PRISM measurements will be less comprehensive, that does not mean they will be without value. We will continue to look forward to PRISM's rollout and hope that it fulfills marketers' hopes.

Walmart and Carrefour expanding in South America

Walmart announced plans to buy one of Chile's largest grocery chains:

Wal-Mart spokesman Kevin Gardner said from the company's headquarters at Bentonville, Ark., that D&S operates 185 stores in Chile and is a "significant" player in the country's grocery-retail sector.

Walmart is currently operating in Argentina, Brazil, Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Puerto Rico.

Carrefour, meanwhile, is planning to expand in Brazil, with expectations that Brazil will become their second-biggest market (it's currently third, behind France and Spain).

Carrefour SA, Europe’s biggest retailer, plans to open a many as four new stores in Brazil in the first quarter even as growth slows in Latin America’s biggest economy.

Carrefour sees growth opportunities in the southern part of Brazil and is interested in buying other companies, said Pedro Daniel Magalhaes, chief financial officer of Grupo Carrefour Brasil, in an interview with Bloomberg Television in Sao Paulo.

I thought Wal-Mart was going back to basics

It seems like Wal-Mart has been responding to the economy by returning to the basics -- more private label, cutting toy prices for Christmas, etc.

And then we see a Wal-Mart with valet parking? What's that all about!?!

Wal-Mart's new logo

The hyphen and the star are going, going, and soon (this fall) to be gone.


I like it. The only thing I don't like is that, if they really are doing away with the hyphen, I'll have to go back and change all the tags on "Wal-Mart" articles to "Walmart".

Important question: Is the yellow thing a star (harkening back to the old logo) or, as I've seen it described, a sunburst, a flower, or an asterisk? For now, I'll stay with "yellow thing".

Update on the Tesco/Wal-Mart battle

Here are a few links on Tesco's Fresh & Easy and their upcoming battle with Wal-Mart's Marketside stores:

This item says that F&E is revamping its interior to be "warmer" and increasing the signage in the store.

A Tesco spokesman said the design has been "tweaked" and, while it will maintain its clean look and feel, the changes should help shoppers "dash in and find the milk or whatever other products they want to find quickly and easily".

They also report on the restarting of store openings after a three-month pause to rethink the format, and on F&E's increase in private-label (adding another 250 PL products to a mix that was already about 50% PL).

Here's an interview with Tim Mason, the head of F&E, that has a bunch of interesting stuff. He explains the "pause", and discusses the increase in PL, acceptance of packaged fruit and veggies, and comments on the competition from Marketside and Safeway (Market by Von's):

You always have to assume that competitors will respond. Running small stores is a very difficult thing to do if you think how long Tesco took to running Express [its UK convenience chain] before turning it into a scale business. That is because it is different and there are different policies and procedures. I have been to the Safeway, it is a very pretty store.

Interesting interview -- worth a read.

And finally, this is an article suggesting that Wal-Mart is planning to go up-market with its Marketside stores:

Wal-Mart has indicated that its new Marketside grocery stores will be built around a “premium” rather than low-cost offering, suggesting its new small format stores will be less focused on price than the rival Tesco-owned Fresh & Easy chain. [...]

Job advertisements for the new Wal-Mart business say the stores will deliver “unique solutions for time-starved consumers in a premium fresh/convenience oriented format” – an indication of the pricing position of the new 15,000 sq ft stores.

Wal-Mart has already indicated that the neighbourhood stores will be focused on delivering “meal solutions”. Store planning documents indicate that food will be prepared and served on the premises, in contrast to the minimalist utilitarian approach of Tesco’s hard discount Fresh & Easy stores.

I think this is particularly interesting, because my opinion of Wal-Mart is that they have a track record of great success in pummeling rivals on price, but have been less successful in situations where they have less of a price advantage and have to compete on other factors. Examples are Germany, where fair trade laws restricted price-cutting; UK, where Tesco cuts prices just as well or better; and China, where, well, importing goods from China is not an advantage.

Of Woolworth's and Sears

The last Woolworth's stores disappeared from the US more than a decade ago and had become irrelevant long before that, though the company goes on (it's called Foot Locker today). Woolworth's has gone on being a powerful retail name around the world, however. Spin-offs of the US company continue to operate under the original name in the UK, Germany, Mexico, and South Africa. (The biggest retailer in Australia is named Woolworth's, but has no connection to the US company).

If this item is correct, Woolworth's UK may be on course to follow its American parent into oblivion:

Going, going, not quite gone, but most definitely in the departure lounge of life: Woolworths is suffering a long, slow death. For those, like me, who were children in the Fifties and early Sixties, it's painful to watch. An old friend, with whom too many of us have lost touch, awaits the coup de grâce.

This week, the company finally ditched its genial but ineffective chief executive, Trevor Bish-Jones. His six-year reign was largely a story of mitigating failure: much promised, little delivered. In the City, where sentimental attachment counts for zero, Woolies is an unfunny joke.

The company has 800 outlets, with annual sales of about £1.7 billion, but barely makes a profit. At 9p each, Woolworths' shares cost less than a handful of goodies from the pick'n'mix counter. Its stock market worth is down to £130 million, a tiny fraction of Tesco's £30 billion. Woolies' investors have lost nearly 85 per cent of their value in three miserable years.

The former king of British retailing is now worth 1/200th the value of the current monarch. That's gotta hurt.

Read the full article, if only for the delightfully nasty comments the author throws in, such as: "... Woolies lumbers along like a corporate stegosaurus, a beast the size of a bus, with a brain no bigger than a walnut."

When I read it, though, it kept reminding me of the long, slow, and on-going death of America's former retail leader, Sears. It's hard to believe that up until about twenty years ago, Sears was the biggest retailer in the world (I'm going by memory here, I couldn't find the exact figures and dates). In the late 80s, Sears, Wal-Mart, and Kmart were virtually tied for the top spot -- today, Sears and Kmart combined are about 1/7th of Wal-Mart in sales.

The reasons for the decline of Woolworth and Sears are similar, but can be summarized as a failure to adapt to changing conditions, abetted by flailing, inconsistent attempts to adapt (frequent strategy changes, management upheavals, etc). Much of the article about Wolworth's could have been cribbed from a history of Sears:

• "In the accelerating evolution of Britain's high street, fleet-footed rivals have adapted far more readily to changes in consumer behaviour; in some cases they have led them."
• "Most successful retailers stand for something distinct, whether it's price, quality, value, range or convenience. By contrast, Woolies has, in the jargon of professional marketeers, no unique selling point (USP)."
• "'Woolies' brand is an empty shell,' says Rita Clifton, chairman of Interbrand, a brand consultancy. 'There are lots of memories but nothing current, clear and vibrant. The stores are a shabby, disorganised nightmare.'"
• "On its bags, Woolies boasts: "Over 500,000 products to choose from with easy ways to shop." Inside the store, however, were rows of empty shelves."
• "It was a similar story throughout. On the shelf for light switches and bulbs, there were 18 price tags without corresponding items. In the Price Crash box for DVDs and CDs, there were 21 display units, but only four had anything in them. The confectionary rack at the main till appeared to have been supplied by militant weight watchers: no Twix or Galaxy bars."
• "The main headache for Woolies, however, apart from its self-inflicted wounds, was just around the corner: Tesco, the nemesis of many weak retailers. I could have hurled a bowling ball down Woolworth's aisles and hit no one. In Tesco, such action would have scattered shoppers like skittles. They were queuing eight deep at six checkouts with baskets fully loaded."

Sound like any of your recent experiences at Sears (assuming you've recently been in a Sears, which is unlikely)?

The real lesson to be drawn from this is that no one stays on top forever. Wal-Mart has made a number of missteps in recent years (mostly in their international operations), and the long-term effects of internet retailing are still not known. The stegosaurus, Woolworth's, and Sears were unable to adapt. Will Wal-Mart do better?

Wal-Mart's Marketside sounds a lot like Fresh & Easy

The first description I've read of Wal-Mart's new format, to be called Marketside, sure sounds an awful lot like a Fresh & Easy wannabee:

... the stores will feature a smaller assortment than a traditional grocery store and will focus on fresh goods.

The world's largest retailer, which has described Marketside as "the neighborhood market for busy people with a taste for fresh and delicious food," is preparing to open four of its first stores of this format in the Phoenix, Arizona, area. Plans have been in development for 18 months.

Sound familiar? Here's the same article describing Fresh and Easy:

Tesco wants to woo U.S. shoppers with smaller convenience stores that emphasize ready-to-eat meals and fresh produce.

The Marketside stores will be about 15,000 square feet

A visit to Fresh & Easy

On a recent evening, while on assignment in Los Angeles, I went out with two of my colleagues, Andrew Wilson and Dhruthi Murthy, to visit one of Tesco's new Fresh & Easy stores.

The first conclusion to be drawn from this is that all three of us need to seriously examine our priorities if the best thing we can think of to do with a free evening is to check out new store formats.

The second is that Tesco has a lot of work to do.

I had heard that one of the problems Fresh & Easy has faced during its intro period is that Tesco was in such a hurry to get a lot of stores opened that they selected some poor locations. This seems to be confirmed by the fact that our client advised us not to visit the first location we mentioned, since we would be unlikely to survive to return to work the next day (the client. of course, was concerned that this might cause a missed deadline).

Our second choice, in Long Beach, was in a reasonably nice mid-level strip mall. The Fresh & Easy had apparently replaced a departed retailer, so maybe this wasn't indicative of their built-from-scratch locations, but we noted immediately the bare concrete floors. More important, though, were the bare shelves. The number of out-of-stocks was terrible and no one had taken the trouble to at least rearrange the shelves as a cover-up.

Most categories consisted entirely of private label products (a strategy Tesco apparently intends to expand, according to this item reporting that they will add 250 more PL products). This is good, although their choice of branded products didn't seem to follow any discernible pattern. They also had a habit of putting the same product in multiple parts of the store, which would make more sense, it seems, in a larger store. We saw three stack-outs as well as shelf space for a 24-pack of bottled water on promo. There were also strange juxtapositions, such as ice cream mixed in with frozen fish in the freezer section.

There are reports that shoppers are positive about Fresh & Easy. This report gives them overwhelmingly good reviews from customers.

The researchers found that customers who did visit Fresh & Easy liked what they saw. The chain was rated higher than Trader Joe's and Whole Foods on freshness of product, and it even managed to beat Wal-Mart on value for money.

Execution said that it expected shopper numbers - the stores they were monitoring had only 20-30 customers through the door every hour - to increase as the brand grew.

Nearly nine in 10 shoppers said they would "highly recommend" the stores to friends and family - the highest recommendation score in 200 brand evaluations undertaken by the team.

Needless to say, we weren't interviewed.

Part of the problem may be that Fresh & Easy is trying to create a new niche, a high end c-store with lots of fresh produce and prepared meals -- a mix of 7-11 and Trader Joes. It will take time to fully define the format that will do this right. Certainly a big part of the problem is that it's still very early in the life of this chain -- they need to be given time to develop. Given Tesco's track record, I'm not prepared to bet against them.

Neither, apparently, is Wal-Mart, which is planning to open very similar stores in Phoenix, going head-to-head in one of Fresh & easy's markets.

Wal-Mart Stores Inc intends to prepare and serve food in its planned small-format stores, the Financial Times said on Friday, as it competes with British retailer Tesco's Fresh & Easy markets.

The smaller-format stores will include a kitchen, food counters and seating for up to nine people, the FT said, citing planning documents.

Apologies to Wal-Mart

A year or so ago, I made several posts questioning whether Wal-Mart had lost its way. These were generated by poor revenue and profit figures, as well as the closing of their South Korean and German operations, and the ongoing problems in the UK and Japan. I questioned whether Wal-Mart had taken its eye off the ball and was too distracted by international expansion to deal with the basics.

When they announced they were going upscale on fashion, and then quickly reversed direction, I went so far as to question whether they were suffering from the dread "Sears Disease" -- the frequent strategy changes that marked the decline of the former #1 retailer.

I'm still not convinced that Wal-Mart has totally righted the ship (things in the UK and Japan are looking no better), but credit must be given when things go right, and Wal-Mart's profits were up 6.9% in the first quarter.

Wal-Mart has worked to ensure that checkout lines are shorter and that stores are cleaner, with better layouts and friendlier employees. Those improvements are helping in the short term but should keep customers returning when they have more money, Schoewe said.

"When we turn the corner with the economy, this is a business that should do well," Schoewe said.

We'll see. But for now -- well, done, Wal-Mart.

Asda wants foreign suppliers excluded from ethics rules

The UK's Competition Commission has recommended creation of a set of ethical guidelines to prevent retailers from using their clout to mistreat suppliers. Asda has said they want foreign suppliers excluded from the rules.

The UK's second biggest grocer has included the demand in its response to the Competition Commission's remedies report, published in February after a two-year inquiry into the £125 billion grocery market.

The Commission provisionally recommended that grocers set up an ombudsman service to help protect small suppliers and farmers and said supermarkets may be forced to appoint compliance officers to ensure they treat suppliers in accordance with a new and wide-ranging code of practice, the Groceries Supply Code of Practice.

If I were a foreign supplier to Asda, this request would make me a bit nervous: What exactly does Asda have in mind doing to me that they don't want the ombudsman to know about?

Is Wal-Mart considering a UK pull-out?

The Telegraph says that Wal-Mart has recently considered (but rejected for now) a sale of their UK Asda division:

... Wal-Mart president Lee Scott became so dismayed at the failure to crack the UK market and the constraints on future growth that last year he ordered a strategic review that could have seen Wal-Mart float a minority stake in Asda or even pull out of the UK entirely.

According to sources the strategic review has - for now - been shelved. Asda refused to comment.

Wal-Mart has recently posted better-than-expected results, but a year ago things were looking a bit bleaker. That may have some bearing on the question. Still, added to the German and Korean pull-outs, and the continuing poor performance in Japan, it raises questions about Wal-Mart's international strategy.

Wal-Mart wants tiered pricing for CDs

Wal-Mart is pushing the record labels to come up with a tiered pricing plan for CDs, according to an article from Billboard:

The major music companies have been resistant to lowering their price on CDs, but now they may be dragged to that point: Wal-Mart, the largest retailer of music with an estimated 22 percent market share, has proposed a five-tiered pricing scheme that would allow the discounter to sell albums at even lower prices and require the labels to bear more of the costs.

The tiers would be:

• Top 15-20 titles: $10
• Hits and current titles: $12
• Top catalog: $9
• Midline catalog: $7
• Budget items: $5

The article quotes a Wal-Mart exec as saying:

"When you look at sales declines with physical product, and you have a category declining like it is, you have to make decisions about what the future looks like," he said. "If you have a business that is declining and you want to turn it around, it really takes looking at it from all angles."

The fascinating item is that there is apparently consideration of dropping music altogether, or at least cutting back to a couple racks, if the labels don't come around. This is a great case study of an industry in crisis. I'll bet there will be a bunch of MBA papers written on the music industry in a few years.